a

GAO

United States General Accounting Office

Report to Congressional Requesters

July 2003 SEC AND CFTC 

FINES FOLLOW-UP

Collection Programs 

Are Improving, but 

Further Steps Are 

Warranted

GAO-03-795
SEC and CFTC have improved their collection programs since GAO issued 

its 2001 fines report. While it was too early to fully assess the effectiveness 

of their actions, SEC could be doing more to maximize its use of Treasury’s 

collection services. SEC has implemented regulations, procedures, 

collections guidelines, and controls for using the Treasury Offset Program 

(TOP), which applies payments the federal government owes to debtors to 

their outstanding debts. However, SEC has been focusing on referring to 

TOP those delinquent cases with amounts levied after its new collections 

guidelines went into effect. The agency has not developed a formal strategy 

for referring older cases, reducing the likelihood of collecting monies on 

what could be more than a billion dollars of delinquent debt. Further 

impeding collection efforts, SEC does not have a reliable system for tracking 

monies owed on these older cases and therefore could not determine which 

cases were not being referred to TOP. SEC has drafted an action plan for a 

new system to track all cases with a monetary judgment. Once the system is 

in place, the agency should have a tool for identifying all cases, including 

older delinquent cases that can be referred to TOP. However, SEC has not 

established a time frame for fully implementing the plan. 

GAO’s calculations for closed cases (collection actions completed) showed 

that regulators’ collection rates on fines imposed between 1997 and August 

2002 equaled or exceeded those from 1992 to 1996. Recalculating the rates 

to include closed and open cases (collection actions ongoing) affected SEC’s 

and CFTC’s collection rates, primarily because of a few large uncollected 

fines. 

Collection Rates for Fines Levied on Open and Closed Cases and Closed Cases for 1997–

August 2002

Open and closed 

cases Closed cases 

Securities and futures regulators Percentage collected Percentage collected 

SEC 40% 94% 

CFTC 45 99 

American Stock Exchange 87 95 

Chicago Board Options Exchange 98 99 

Chicago Board of Trade 94 95 

Chicago Mercantile Exchange 96 97 

Chicago Stock Exchange 91 100 

NASD 66 95 

National Futures Association 67 75 

New York Mercantile Exchange 83 100 

New York Stock Exchange 100 100 

Source: GAO analysis of regulators’ data, except NASD, which calculated its own rates. 

Collecting fines ordered for 

violations of securities and futures 

laws helps ensure that violators are 

held accountable for their offenses 

and may also deter future 

violations. The requesters asked 

GAO to evaluate the actions the 

Securities and Exchange 

Commission (SEC) and Commodity 

Futures Trading Commission 

(CFTC) have taken to address 

earlier recommendations for 

improving their collection 

programs. The committees also 

asked GAO to update the fines 

collection rates from previous 

reports. 

SEC should (1) develop a strategy 

for referring older cases to 

Treasury for collection and (2) 

implement a reliable system to help 

manage all cases. SEC generally 

agreed with the facts presented and 

agreed to implement the 

recommendations made. 

www.gao.gov/cgi-bin/getrpt?GAO-03-795.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Davi 

D’Agostino at (202) 512-8678 or 

dagostinod@gao.gov. 

Highlights of GAO-03-795, a report to 

House Ranking Minority Members of 

congressional committees 

July 2003 

SEC AND CFTC FINES FOLLOW-UP

Collection Programs Are Improving, but 

Further Steps Are Warranted 
Page i GAO-03-795 SEC and CFTC Fines Follow-up

Contents

Letter 1

Results in Brief 3

Background 6

SEC and CFTC Have Taken Steps to Improve Their Collection 

Programs, but SEC Has Not Ensured That All Eligible Cases Are 

Referred to FMS and TOP 8

SEC and CFTC Have Taken Steps to Improve Their Oversight of 

SROs’ Sanctioning Practices, but Some Concerns Remain 14

We Calculated Collection Rates in Two Different Ways to Provide a 

More Complete Picture of Collection Efforts 19

Conclusions 27

Recommendations 28

Agency Comments and Our Evaluation 28

Appendixes

Appendix I: Scope and Methodology 30

Appendix II: Comments from the Securities and Exchange Commission 36

Appendix III: Securities Regulators’ Collection Rates for Open and Closed 

Cases by Calendar Year 39

Appendix IV: Futures Regulators’ Collection Rates for Open and Closed 

Cases by Calendar Year 42

Appendix V: GAO Contacts and Staff Acknowledgments 45

GAO Contacts 45

Acknowledgments 45

Tables Table 1: Collection Rates for Fines Levied on Closed Cases for 

1997–August 2002 and 1992–96 20

Table 2: Collection Rates for Fines Levied on Open and Closed 

Cases and Closed Cases for 1997–August 2002 21

Table 3: SEC’s Collection Rates 39

Table 4: The American Stock Exchange’s Collection Rates 39

Table 5: The Chicago Board Options Exchange’s Collection 

Rates 40

Table 6: The Chicago Stock Exchange’s Collection Rates 40

Table 7: NASD’s Collection Rates 41

Table 8: NYSE’s Collection Rates 41

Table 9: CFTC’s Collection Rates 42

Table 10: The Chicago Board of Trade’s Collection Rates 42
Contents

Page ii GAO-03-795 SEC and CFTC Fines Follow-up

Table 11: The Chicago Mercantile Exchange’s Collection Rates 43

Table 12: NFA’s Collection Rates 43

Table 13: The New York Mercantile Exchange’s Collection Rates 44

Figures Figure 1: SEC’s Actual Collection Rates for Open and Closed Cases, 

1997–August 2002, and Adjusted Collection Rates for 

Selected Years 22

Figure 2: CFTC’s Actual Collection Rates for Open and Closed 

Cases, 1997–August 2002, and Adjusted Collection Rates 

for Selected Years 24

Figure 3: NASD’s Collection Rates for Open and Closed Cases, 

1997–2002 26

Abbreviations

CFTC Commodity Futures Trading Commission

DPTS Disgorgement and Penalties Tracking System

FBI Federal Bureau of Investigation

FMS Financial Management Service

NFA National Futures Association

NYSE New York Stock Exchange 

SEC Securities and Exchange Commission

SRO self-regulatory organization

TOP Treasury Offset Program

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Page 1 GAO-03-795 SEC and CFTC Fines Follow-up

United States General Accounting Office

Washington, D.C. 20548

A

July 15, 2003 Letr

The Honorable John D. Dingell

Ranking Minority Member

Committee on Energy and Commerce 

House of Representatives 

The Honorable Barney Frank 

Ranking Minority Member

Committee on Financial Services

House of Representatives

The Honorable Paul E. Kanjorski

Ranking Minority Member

Subcommittee on Capital Markets, Insurance, 

 and Government Sponsored Enterprises

Committee on Financial Services

House of Representatives 

Collecting fines ordered for violations of securities and futures laws helps 

ensure that violators are held accountable for their offenses and may also 

deter future violations. While previous GAO reports1

 found that securities 

and futures regulators collected most of the fines imposed, the reports also 

identified weaknesses in the collection programs of the Securities and 

Exchange Commission (SEC) and the Commodity Futures Trading 

Commission (CFTC). These reports made several recommendations to help 

SEC and CFTC improve their collection programs and their oversight of the 

sanctioning practices of self-regulatory organizations (SRO).2

1

U.S. General Accounting Office, Money Penalties: Securities and Futures Regulators 

Collect Many Fines but Need to Better Use Industrywide Data, GAO/GGD-99-8 

(Washington, D.C.: Nov. 2, 1998) and SEC and CFTC: Most Fines Collected, but 

Improvements Needed in the Use of Treasury’s Collection Service, GAO-01-900 

(Washington, D.C.: July 16, 2001).

2

SROs have an extensive role in regulating the U.S. securities and futures markets, including 

ensuring that members comply with federal securities and futures laws and SRO rules. SROs 

include the national securities and futures exchanges, registered securities and futures 

associations, registered clearing agencies, and the Municipal Securities Rulemaking Board.
Page 2 GAO-03-795 SEC and CFTC Fines Follow-up

This report responds to your July 30, 2001, request that we evaluate the 

actions that SEC and CFTC have taken in response to the 

recommendations made in our earlier fines collection reports. Also, as 

agreed in a September 5, 2002, meeting with your staff, we are updating the 

collection rates from our earlier reports. Our objectives were to (1) 

evaluate SEC’s and CFTC’s actions to improve their collection programs, 

(2) assess these agencies’ efforts to enhance their oversight of the SROs’ 

sanctioning practices, and (3) calculate the fines collection rates for SEC, 

CFTC, and nine securities and futures SROs3

 for 1997–2002.4

To evaluate SEC’s and CFTC’s actions to improve their collection programs, 

we reviewed relevant debt collection regulations, guidelines, procedures, 

controls, and laws; analyzed data related to their debt collection actions; 

and interviewed officials of these agencies and of the Financial 

Management Service (FMS) of the U.S. Department of Treasury. To assess 

SEC’s and CFTC’s efforts to enhance their oversight of the SROs’ 

sanctioning practices, we interviewed agency officials and reviewed 

related data. To calculate the fines collection rates for 1997–2002 for all the 

SROs except NASD, we used data provided by SEC, CFTC, and the 

regulators for fines levied from January 1997 through August 2002. Because 

of the way its financial system was designed, NASD’s calculations are 

based on fines invoiced through December 2002. Limitations on SEC’s data 

reliability affect the accuracy of calculations related to its collections 

activities as well as its overall fines collection rates. Appendix I contains a 

full description of our scope and methodology. 

3

The nine SROs include the American Stock Exchange, Chicago Board Options Exchange, 

Chicago Board of Trade, Chicago Mercantile Exchange, Chicago Stock Exchange, NASD, 

National Futures Association, New York Mercantile Exchange, and New York Stock 

Exchange.

4

All years in this report are calendar years. 
Page 3 GAO-03-795 SEC and CFTC Fines Follow-up

Results in Brief SEC and CFTC have continued to improve their collection programs since 

we issued our 2001 fines report, but SEC needs to make additional 

improvements to its program. First, SEC amended its debt collection 

regulations to allow cases to be referred to FMS’s Treasury Offset Program 

(TOP).5

 SEC also implemented procedures, collections guidelines, and a 

collections database—the latter to aid in tracking and referring to FMS, 

including TOP, those cases with fines and disgorgements6

 levied after the 

guidelines went into effect. It was too soon to assess the effectiveness of 

SEC’s strategy related to these post-guidelines cases, because most of them 

were not yet eligible for referral. In contrast, SEC did not have a formal 

strategy—one that prioritized cases based on their collection potential and 

established time frames for their referral—for cases with fines and 

disgorgements levied before the guidelines went into effect.7

 Further 

impeding collection efforts on these pre-guidelines cases, SEC’s original 

system for tracking all cases with money judgments, the Disgorgement and 

Penalties Tracking System (DPTS), was unreliable. Because DPTS was 

unreliable, SEC could not determine which pre-guidelines cases were not 

being referred to FMS and TOP or the amounts associated with them—

potentially well over a billion dollars. SEC has drafted a two-phase action 

plan for replacing DPTS by the end of fiscal year 2003 but has not 

established a time frame for implementing the computer system for the 

second phase. In addition, SEC has developed procedures for making 

timely responses to offers presented by FMS to settle a violator’s debt, and 

CFTC has implemented procedures designed to ensure the timely referral 

of delinquent cases to FMS. However, only four cases had been processed 

under each agency’s procedures as of April 2003, an insufficient number to 

assess their effectiveness.

SEC and CFTC have also taken some actions to improve their oversight of 

the SROs’ sanctioning practices, but SEC has not yet used the SROs’ data to 

analyze these practices. In response to our 1998 recommendation, SEC has 

been inputting the SROs’ data into its database for use in analyzing 

5

Under TOP, FMS identifies federal payments, such as tax refunds, that are owed to 

individuals and applies the payments to their outstanding debt. All cases referred to FMS for 

collection are also eligible for referral to and servicing under TOP.

6

Disgorgement is a type of sanction that requires violators to give up profits obtained as a 

result of violating the law.

7

According to SEC officials, although SEC currently has no formal strategy regarding preguidelines cases, all eligible debts will ultimately be referred to FMS and TOP.
Page 4 GAO-03-795 SEC and CFTC Fines Follow-up

violations and disciplinary sanctions. These analyses should help SEC 

identify any disparities among SROs and find ways to improve their 

disciplinary programs. However, technological problems have hampered 

SEC’s ability to complete the analyses. SEC officials told us that the agency 

expects to initiate its first analysis during the summer of 2003. They also 

said that the agency plans to develop a new disciplinary database to collect 

and analyze data on sanctions in a timelier manner but has not established 

a date for implementing it. Also, consistent with our 2001 recommendation, 

SEC and CFTC have been monitoring readmission applications but have 

not yet received any from barred individuals. We found, however, that SEC, 

CFTC, the National Futures Association (NFA), and NASD have controls 

designed to ensure that inappropriate readmissions of barred individuals 

do not occur. Further, while examining the application review process, we 

found weaknesses in controls over fingerprinting that could result in 

inappropriate admissions to the securities and futures industries. But we 

did not determine the extent to which these weaknesses resulted in 

inappropriate admissions. 
Page 5 GAO-03-795 SEC and CFTC Fines Follow-up

We calculated the fines collection rates in two ways in order to provide a 

more complete picture of the regulators’ collection activities. The 

collection rates for closed cases (those for which all possible collection 

actions had been completed) for SEC,8

 CFTC, and the SROs from January 

1997 to August 2002 showed that the regulators had collected between 75 

and 100 percent of the fines imposed and that they had either improved 

their performance over the 1992-96 period or maintained a 100-percent 

performance rate.9 Broadening the analysis to include open cases (those 

for which collection actions were ongoing) had the greatest impact on 

SEC’s and CFTC’s collection rates. Including open cases, they collected 40 

and 45 percent, respectively, of the total dollar amount of fines levied. 

However, the differences in the rates were largely explained by a few large 

uncollected fines. According to regulators, large fines are more difficult to 

collect than small ones, and a few large uncollected fines can significantly 

affect an agency’s collection rate. The rates for the SROs changed much 

less when adding open cases because the SROs generally had fewer and 

smaller uncollected fines. According to SRO officials, SROs that were 

exchanges had higher collection rates in part because they could sell a 

member’s “seat,” or membership, to pay fines, giving members an incentive 

to pay their fines quickly. As discussed in a previous report,10 these results 

underscore the limitations of using the collection rate alone to measure the 

effectiveness of collection efforts. That is, the rate can be significantly 

influenced by factors that are beyond regulators’ control. Nonetheless, 

examining the rates and the factors influencing them can be a starting point 

for obtaining an understanding of regulators’ performance. 

This report makes three recommendations to SEC for improving its 

tracking and referral of delinquent cases to FMS and TOP and for 

completing its analysis of SROs’ disciplinary sanctions. It also makes a 

recommendation to SEC and CFTC for improving controls over the 

fingerprinting of industry applicants. We received comments on a draft of 

this report from SEC and CFTC. Both agencies generally agreed with the 

8

Although DPTS was unreliable, we used the system because it was the only available 

source of data on SEC’s collection efforts. 

9

The closed case collection rate for 1992-96 appeared in our 1998 fines report

(GAO/GGD-99-8). 

10U.S. General Accounting Office, SEC Enforcement: More Actions Needed to Improve 

Oversight of Disgorgement Collections, GAO-02-771 (Washington, D.C.: July 12, 2002). 
Page 6 GAO-03-795 SEC and CFTC Fines Follow-up

facts we presented and agreed to implement the recommendations we 

made. SEC’s written comments are reprinted in appendix II. 

Background The regulatory structure of the U.S. securities markets was established by 

the Securities Exchange Act of 1934, which created SEC as an independent 

agency to oversee the U.S. securities markets and their participants. 

Similarly, in 1974 the Commodity Exchange Act established CFTC as an 

independent agency to oversee the U.S. commodity futures and options 

markets. Both agencies have five-member commissions headed by 

chairpersons who are appointed by the President of the United States for 

5-year terms. Among other things, the commissioners approve new SEC 

and SRO rules and amendments to existing rules. They also authorize 

enforcement actions. SEC and CFTC are headquartered in Washington, 

D.C. SEC has a combined total of 11 regional and district offices; CFTC has 

5 regional offices.

Within SEC and CFTC, the divisions of enforcement are responsible for 

investigating possible violations of the securities and futures laws, 

respectively. With their commissions’ approval, they litigate or settle 

actions against alleged violators in federal civil courts and in administrative 

actions. Typically, enforcement staff investigate alleged violations of law, 

prepare a memorandum for the commissioners that describes alleged 

violations, and, if appropriate, make recommendations for further action. 

When the commissions decide that a case warrants further action, they can 

authorize filing a civil suit against the alleged violator in federal district 

court or instituting a proceeding before an administrative law judge. If 

either the court or the administrative law judge finds that a defendant has 

violated securities or futures laws, it can issue a judgment ordering 

sanctions such as fines and disgorgements and, in the case of futures 

violations, restitution; it can also bar or suspend violators from the 

securities and futures industries. 

The collection process for delinquent debt begins when all or part of a fine 

or disgorgement becomes delinquent because the violator has failed to pay 

some or all of the amount due by the date ordered by the court or 

administrative law judge. If the court or administrative law judge has not 

specified a payment date and no stay has been entered, SEC considers the 

debt delinquent 10 days after the court enters the judgment. CFTC officials 

told us that absent an appeal, they consider the debt delinquent 15 or 

60 days after the administrative law judge or court entered the judgment in 

administrative and civil cases, respectively. SEC and CFTC collect 
Page 7 GAO-03-795 SEC and CFTC Fines Follow-up

delinquent monetary judgments primarily through post-judgment litigation, 

negotiating payments with defendants, and making referrals to the 

Department of Treasury or the Department of Justice.

In accordance with the Debt Collection Improvement Act of 1996, SEC and 

CFTC have each entered into an agreement with the Department of 

Treasury to improve collections. Under this act, federal agencies are 

required to submit all nontax debts that are 180 days delinquent to 

Treasury’s FMS. 11 The act also requires that FMS either take appropriate 

steps to collect the debt or terminate collection actions. In addition to 

using traditional methods to collect these debts, such as sending demand 

letters and hiring private collection agencies, FMS can use TOP. Under TOP, 

FMS identifies federal payments, such as tax refunds, that are owed to 

individuals and applies the payments to their outstanding debt. All cases 

referred to FMS for collection are also eligible for referral to and servicing 

under TOP. FMS also uses collection agencies to negotiate compromise 

offers with individual debtors. A compromise offer is an agreement 

between a federal agency and an individual debtor, in which the federal 

agency agrees to discharge a debt by accepting less than the full amount. 

Once the collection agency negotiates a compromise offer with a debtor, it 

forwards the offer to FMS. In the absence of an agreement between FMS 

and the federal agency to approve compromise offers on its behalf, FMS 

refers the offer to the federal agency for final approval.

The U.S. securities and futures markets are regulated under their 

respective statutes through a combination of self-regulation (subject to 

federal oversight) and direct federal regulation. This regulatory scheme 

was intended to give SROs responsibility for administering their own 

operations, including most of the daily oversight of the securities and 

futures markets and their participants. Two of the SROs—NASD and 

NFA—are associations that regulate registered securities and futures firms 

and oversee securities and futures professionals, respectively. The 

remaining SROs include national exchanges that operate the markets 

where securities and futures are traded. These SROs are primarily 

responsible for establishing the standards under which their members 

conduct business; monitoring the way that business is conducted; and 

bringing disciplinary actions against their members for violating applicable 

federal statutes, their own rules, and the rules promulgated by their federal 

regulator. SROs can impose fines and other sanctions against members that 

1131 U.S.C. § 3711 (g)(1).
Page 8 GAO-03-795 SEC and CFTC Fines Follow-up

violate securities or futures laws or SRO rules, as applicable, through their 

enforcement and disciplinary processes. Some SROs’ disciplinary 

proceedings are decided by a hearing panel, which examines the evidence 

and decides on the appropriate sanction. SROs’ actions are usually initiated 

by a customer complaint, a compliance examination, market surveillance, 

regulatory filings, or a press report. 

SEC and CFTC Have 

Taken Steps to 

Improve Their 

Collection Programs, 

but SEC Has Not 

Ensured That All 

Eligible Cases Are 

Referred to FMS and 

TOP 

SEC and CFTC have taken actions to improve their collection programs, 

addressing the three recommendations in our 2001 fines report. However, it 

was too early to assess the effectiveness of their actions. After we made 

our first recommendation, SEC took various steps, among them, 

implementing collections guidelines that were intended to ensure that 

eligible delinquent cases are referred to FMS, including TOP. But SEC’s 

actions have not ensured that all eligible cases are referred. To address our 

second recommendation, SEC developed procedures for responding to 

compromise offers submitted by FMS within 30 days. To address our third 

recommendation, CFTC implemented procedures for ensuring the timely 

referral of delinquent cases to FMS for collection. 

SEC Has Implemented 

Regulations, Procedures, 

Guidelines, and a 

Collections Database, but 

Its Actions Have Not 

Ensured the Referral of All 

Eligible Cases to FMS and 

TOP

SEC implemented regulations, related procedures and guidelines, and a 

collections database intended to ensure that eligible delinquent cases are 

referred to FMS, including TOP, as required by the Debt Collection 

Improvement Act of 1996. However, SEC has focused on referring postguidelines cases, and it was too early to assess the effectiveness of SEC’s 

strategy as it related to these cases. In contrast, SEC did not have a formal 

strategy for referring pre-guidelines cases and, further impeding its 

collection efforts, it did not have a reliable agencywide system for tracking 

monies owed in these cases. Recognizing that its system was unreliable, 

SEC has drafted a two-phase action plan under which it will implement a 

centralized agencywide tracking system for all delinquent debt. However, it 

has not established a time frame for fully implementing the computer 

system for the second phase of the plan. 

SEC’s Strategy Has Focused on 

Referring Post-Guidelines Cases, 

but It Is Too Early to Assess the 

Effectiveness of This Strategy 

We recommended in our 2001 report that SEC take steps to ensure that 

regulations allowing SEC’s delinquent fines to be submitted to TOP be 

adopted so that SEC would benefit from the associated collection 

opportunities. At the time of our review, SEC officials had told us that they 
Page 9 GAO-03-795 SEC and CFTC Fines Follow-up

had rewritten their rules for using TOP but that they could not estimate 

when the rules would be approved by the commission or implemented. 

After we made our recommendation, SEC amended its debt collection 

regulations.12 In April 2002, SEC implemented related procedures to allow 

cases to be forwarded to TOP. Consistent with the Debt Collection 

Improvement Act of 1996, the procedures required that cases be referred to 

FMS after they had been delinquent for more than 180 days. SEC 

subsequently issued additional guidelines and implemented a collections 

database that were intended to ensure that eligible delinquent postguidelines cases are referred to FMS, including TOP, within 180 days of 

becoming delinquent. SEC imposed the more stringent requirement on 

itself in recognition of the enhanced probability of collecting monies 

ordered on newer cases. 

The guidelines provided more detailed instructions for staff on how to 

pursue collections, specifying steps for referring eligible delinquent cases 

to FMS, including TOP, within 180 days. According to an agency official, the 

guidelines went into effect agencywide on September 2, 2002. SEC also 

created a collections database for all post-guidelines fines and 

disgorgement cases that is maintained by headquarters and each regional 

or district office, as applicable. The database tracks actions that staff have 

taken to recover debt on delinquent cases, including preparing cases for 

referral to FMS, and is used to help ensure that staff are following the new 

collections guidelines. SEC officials told us that the agency was tracking 

only post-guidelines cases because the database had limited storage 

capacity and could become unstable if too many cases were added. In 

addition, the agency has assigned attorneys and administrative staff to 

every office to maintain the database and its related collection activities for 

delinquent cases, including ensuring that eligible cases are referred to FMS 

and TOP in a timely manner. According to an agency official, these staff 

received training on using the guidelines in the fall of 2002. 

It was too early to fully assess the effectiveness of SEC’s strategy for 

tracking, collecting, and referring post-guidelines cases, because most of 

these cases were not yet 180 days delinquent. Based on a judgmental 

sample of 66 cases, we identified 4 delinquent fines and disgorgement cases 

12“Debt Collection—Amendments to Collection Rules and Adoption of Wage Garnishments 

Rules,” Securities and Exchange Commission, Release No. 34-44965, 66 Fed. Reg. 54125 

(Oct. 26, 2001). 
Page 10 GAO-03-795 SEC and CFTC Fines Follow-up

valued at $4 million that were eligible for referral as of March 31, 2003. We 

found that SEC had referred two of the four cases within the 180-day time 

frame and was preparing the other two for referral. 

SEC Did Not Have a Formal 

Strategy for Referring PreGuidelines Cases 

Although SEC had developed controls to better ensure that eligible postguidelines cases were promptly referred to FMS and TOP, it had not 

developed a formal strategy for referring eligible pre-guidelines cases. Such 

a strategy would include prioritizing cases based on their collection 

potential and establishing time frames for making the referrals. Further 

impeding its collection efforts, SEC’s original system for tracking monies 

owed in pre-guidelines cases—DPTS—was not reliable. As a result, SEC 

could not identify all the cases that had not been referred to FMS and TOP. 

SEC officials told us that the agency’s April 2002 procedures applied to the 

pre-guidelines cases and that agency attorneys had followed these 

procedures in referring some pre-guidelines cases to Treasury. But SEC did 

not know the extent to which the procedures were being followed or 

whether eligible cases were not being referred. They explained that the 

attorneys would know the status of the cases assigned to them but that no 

agencywide information was available. They also told us that they expected 

all eligible cases to be referred to FMS and TOP eventually but noted that 

they had not prioritized the cases for referral or established time frames for 

referring them. 

Neither we nor SEC could determine with any certainty the extent to which 

eligible pre-guidelines cases were not being referred to FMS and TOP due 

to the unreliability of DPTS. Using DPTS, the only information available, 

we identified about 900 pre-guidelines cases valued at about $2.8 billion 

that were 180 days past due and that might be eligible for referral. As of 

January 31, 2003, almost 54 percent of these cases were over 3 years old 

based on their judgment date, which, in the absence of better data, we used 

as a rough proxy for the delinquency date. SEC officials emphasized that 

these numbers do not accurately reflect the number of pre-guidelines cases 

eligible for referral to FMS and TOP. They said that some of the cases were 

ineligible for referral because they were on appeal, in post-judgment 

litigation, or had a receiver appointed to marshal and distribute assets. In 

addition, many cases might already have been referred for collection. SEC 

officials also pointed out that our calculations of the age of cases were 

inaccurate because we relied on the judgment date rather than the 

delinquency date, which is not tracked in DPTS. We recognize that many 

factors affect the accuracy of DPTS, including some that might not be 

mentioned here. However, we are reporting these numbers as the best 

information available. 
Page 11 GAO-03-795 SEC and CFTC Fines Follow-up

SEC Had an Action Plan for 

Replacing DPTS but Had Not 

Established a Time Frame for 

Full Implementation of the Plan 

Both GAO and SEC have recognized DPTS’s lack of reliability. Our 2002 

disgorgement report and a January 2003 report commissioned by the SEC 

Inspector General found that DPTS was not complete and accurate and 

could not be relied upon for financial accounting and reporting purposes. 

Recognizing that the agency did not have a system that provided an 

accurate assessment of levied amounts and payments (among other 

things), SEC developed a draft action plan for implementing a new system 

to replace DPTS. The April 2003 draft plan calls for implementing a 

comprehensive centralized system for tracking, documenting, and 

reporting on fines and disgorgements ordered, paid, and disbursed in SEC 

enforcement actions. The agency had been taking steps to address the 

milestones in the plan. If the plan is effectively implemented, the agency 

should have a tool for accurately identifying uncollected pre-guidelines 

cases for referral to FMS and TOP for collection.

SEC’s action plan has been divided into two phases. In the first phase, SEC 

is tentatively scheduled to replace DPTS by the end of fiscal year 2003. SEC 

officials described the replacement system as a comprehensive case 

tracking, record-keeping, and reporting system for fines and disgorgements 

ordered, paid, and distributed. They said that the system will be integrated 

with a database maintained by the Division of Enforcement. The 

replacement system is intended to, among other things, maintain the data 

on debt needed for general reporting and management purposes. 

According to SEC officials, one benefit of the replacement system will be to 

assist the agency in managing its delinquent cases. However, SEC will 

continue to rely on its new collections database, which tracks collection 

efforts on post-guidelines cases, to ensure the timely referral of these cases 

to FMS and TOP until phase two of the action plan is implemented. In 

phase two, SEC plans a comprehensive upgrade to its case tracking system, 

which will be integrated with several other databases, including the new 

collections database. SEC expects to begin the requirements analysis for 

the phase two computer system in fiscal year 2004 but has not established a 

milestone for completing this analysis. After the requirements analysis is 

complete, SEC plans to establish an implementation date for the system.

SEC Has Implemented 

Procedures for Responding 

to Compromise Offers in a 

Timely Manner

We recommended in our July 2001 report that SEC continue to work with 

FMS to ensure that compromise offers presented by FMS are approved in a 

timely manner. Our recommendation resulted from a finding that SEC did 

not always respond to compromise offers promptly and that as a result 

some debts had never been collected. For example, we reported that FMS 

waited from between 42 and 327 days for SEC’s decisions on three 
Page 12 GAO-03-795 SEC and CFTC Fines Follow-up

compromise offers. But by the time SEC made its decisions, the debtors no 

longer had the money to pay the amounts specified in the compromise 

offers. To address this concern, in April 2001 FMS proposed securing 

delegation authority from SEC—that is, permission to approve 

compromise offers that SEC did not respond to within 30 days. 

In response to our recommendation, SEC took several steps to ensure that 

compromise offers are approved in a timely manner. First, in July 2001 SEC 

implemented procedures specifying the actions required to address a 

compromise offer, including a schedule to ensure that a decision is made 

within 30 days. For example, within 5 days of receiving an offer, SEC staff 

are to have made a final decision on whether to recommend the offer to the 

commission for approval. SEC also implemented controls to monitor the 

status of offers. When it receives a compromise offer from FMS, SEC enters 

the offer into a system that tracks information such as the date the offer 

was made, the name of the attorney reviewing the offer, the date the offer 

was referred to the commission for a final decision, and the date of the final 

decision. The Division of Enforcement’s chief counsel monitors the status 

of offers based on weekly reports generated from this system to ensure that 

follow-up action is taken to address any problems. Finally, SEC has 

designated two staff to respond to FMS inquiries about the status of 

compromise offers.

It is still too early to determine the effectiveness of SEC’s actions. As of 

April 22, 2003, SEC had received four compromise offers from FMS under 

its new procedures. SEC and FMS data showed that SEC had responded to 

three of the offers within the 30-day guideline and to one offer within 40 

days. The late offer represented a debt of $1.6 million, and the settlement 

offer was for $50,000. SEC staff told us that the agency ultimately rejected 

the offer, at least in part because of the disparity between the amount 

offered and the amount owed. SEC officials attributed the delay in 

responding to this offer to scheduling conflicts caused by the holiday 

season. The officials told us that the agency was in touch with FMS before 

the end of 30 days to indicate, on an informal basis, that the reply to the 

compromise offer would be delayed and that the offer would be rejected. 

FMS officials told us that they did not view SEC’s late response to this offer 

as a problem—that is, the delay did not represent weaknesses in agency 

policies, procedures, or controls. They said that SEC had shown marked 

improvement in responding to compromise offers and that as a result FMS 

was no longer seeking delegation authority from SEC.
Page 13 GAO-03-795 SEC and CFTC Fines Follow-up

CFTC Implemented 

Procedures for Ensuring the 

Timely Referral of 

Delinquent Debt to FMS

We recommended in our 2001 report that CFTC take steps to ensure that 

delinquent fines were promptly referred to FMS, including creating formal 

procedures that addressed both sending debts to FMS within the required 

time frames and requiring all of the necessary information from the 

Division of Enforcement on these debts. Our recommendation flowed from 

a finding in an April 2001 report by CFTC’s Inspector General showing that 

CFTC staff were not referring delinquent debts to FMS in a timely manner, 

potentially limiting FMS’s ability to collect the monies owed. The report 

also noted that CFTC’s collection procedures had not been updated to 

address referrals to FMS and, among other examples, identified a fine in 

the amount of $7 million that had not been referred to FMS for more than 2 

years because of inadequate communication between CFTC’s Division of 

Enforcement and its Division of Trading and Markets. 

As we recommended, CFTC has improved its procedures for referring its 

debt to FMS in a timely manner and has taken steps to ensure that it has all 

the necessary enforcement information before making the referral. CFTC 

updated its collection procedures and implemented them in July 2002. They 

now include specific requirements for referring debt to FMS within 180 

days of the date that the debt became delinquent. CFTC also implemented 

controls to ensure that it has identified all delinquent debt eligible for 

referral. For example, CFTC management reviews quarterly reports on the 

status of cases to ensure that all debts are referred to FMS within 180 days. 

According to CFTC officials, the agency’s shift of all debt collection 

responsibility from its Division of Trading and Markets to its Division of 

Enforcement streamlined its debt referral process.

Although it is too early to fully assess the effectiveness of CFTC’s actions, 

our review of CFTC’s data on uncollected cases indicated that the agency 

had been referring all eligible debt to FMS within 180 days. As of April 24, 

2003, CFTC had had four delinquent cases dating from the time its 

procedures went into effect. Using FMS’s data, we confirmed that the cases 

had been referred to FMS within 123 days. Also, a review of CFTC’s data of 

all delinquent cases levied before the procedures went into effect showed 

that CFTC had referred all eligible cases to FMS for collection. FMS 

officials told us that CFTC had been making debt referrals with complete 

information on all its cases.
Page 14 GAO-03-795 SEC and CFTC Fines Follow-up

SEC and CFTC Have 

Taken Steps to 

Improve Their 

Oversight of SROs’ 

Sanctioning Practices, 

but Some Concerns 

Remain 

SEC and CFTC have taken steps to address our two recommendations for 

improving their oversight of SROs’ sanctioning practices. But SEC has not 

fully implemented our 1998 recommendation that it analyze industrywide 

data on SRO-imposed sanctions to examine disparities and help improve 

disciplinary programs. The agency has experienced technological problems 

that have hampered its ability to complete these analyses. In addition—and 

consistent with our 2001 recommendation—SEC and CFTC have been 

monitoring readmission applications to the securities and futures 

industries. However, at the time of our review neither had received any 

applications since changing their fine imposition practices. Also, SEC, 

CFTC, NASD, and NFA have controls designed to ensure that inappropriate 

readmissions do not occur. Further, while examining the application review 

process, we found weaknesses in controls over fingerprinting that could 

result in inappropriate admissions to the securities and futures industries.

Technological Problems 

Have Hampered SEC’s 

Ability to Analyze 

Disciplinary Actions Across 

SROs 

In our 1998 report, we recommended that SEC analyze industrywide 

information on disciplinary program sanctions, particularly fines, to 

identify possible disparities among the SROs and find ways to improve 

SROs’ disciplinary programs. We concluded that analyzing industrywide 

data could provide SEC with an additional tool to identify disparities 

among SROs that might require further review. We reported in 2001 that 

SEC had developed a database to collect information on SROs’ disciplinary 

actions. 

As of June 30, 2003, according to agency officials, SEC was still inputting 

information into its database but had not yet completed any analyses 

because technological difficulties had hampered its ability to collect 

sufficient data to perform the analyses. First, the database had a limited 

number of fields and therefore could not capture multiple disciplinary 

violations or multiple parties in a single case. In October 2002, SEC officials 

told us that they had addressed this limitation by enhancing the database to 

incorporate the required fields and were continuing to add disciplinary 

information to the database. However, in November 2002, the enhanced 

database failed because it could not support multiple users. SEC repaired 

the database, and agency officials told us that they expected to complete 

their first data analyses in the summer of 2003. The analyses are expected 

to show whether SROs impose similar fines and sanctions for similar 

violations. An SEC official said that the agency expects these analyses to 

supplement the information obtained during agency inspections of the 

SROs’ disciplinary programs. 
Page 15 GAO-03-795 SEC and CFTC Fines Follow-up

SEC officials told us that the agency is planning to use funds from its fiscal 

year 2003 budget increase to develop a new disciplinary database that will 

replace the current one. According to SEC officials, this new disciplinary 

database is expected to allow SROs to submit data on-line rather than 

having to send it to SEC to be entered by staff. This streamlined process is 

expected to reduce data entry errors. An SEC official told us that while 

planning had begun for the new disciplinary database, no completion date 

had been established. 

SEC and CFTC Have 

Monitored Readmission 

Applications and Have 

Controls Designed to 

Preclude Inappropriate 

Readmissions

In our 2001 report, we recommended that SEC and CFTC periodically 

assess the pattern of readmission applications to ensure that the changes in 

NASD’s and NFA’s fine imposition practices do not result in any unintended 

consequences, such as inappropriate readmissions. NASD and NFA had 

stopped routinely assessing fines when barring individuals in October 1999 

and December 1998, respectively, eliminating the related requirement that 

the fines be paid as a condition of reentry to the securities and futures 

industries. These fines had rarely been collected, because few violators 

ever sought reentry. We were concerned that because barred individuals 

were no longer required to pay a fine before reentry, they might be more 

willing to seek readmission. 

Consistent with our recommendation, SEC and CFTC have monitored 

readmission applications. They found, and we confirmed, that no 

individuals who were barred after the changes in NASD’s and NFA’s fine 

imposition practices had applied for reentry. Also, NASD’s and NFA’s 

application review processes included controls designed to ensure that 

inappropriate applications for reentry are not approved. Officials of both 

SROs told us that as part of their background checks they did a database 

search against the names of past and current registrants in both industries 

to determine whether the applicants had a disciplinary history. In addition, 

both SROs submitted applicants’ fingerprints to the Federal Bureau of 

Investigation (FBI) for a criminal background check. NASD and NFA 

required all individuals who had been suspended, expelled, or barred to 

be—at a minimum—sponsored by a registered firm before being 

considered for readmission. According to a CFTC official, finding a sponsor 

is difficult, as most firms would not hire an individual with a history of 

serious disciplinary problems, in part due to increased supervisory 

requirements and the risk of harming their reputations. 

SEC and CFTC were reviewing the applications of all individuals who had 

been statutorily disqualified from registration, including any barred 
Page 16 GAO-03-795 SEC and CFTC Fines Follow-up

individuals, and had the authority to reverse an admission decision made 

by NASD or NFA, respectively.13 SEC and CFTC officials told us that they 

would consider various factors when reviewing a readmission application, 

including the facts and circumstances of the case, the appropriateness of 

the proposed supervision, and the prospective employer’s ability to provide 

the proposed supervision. Officials from both agencies told us that if they 

were to begin receiving a large number of applications from barred 

applicants, they would reexamine the SROs’ fine imposition practices.

Weaknesses in 

Fingerprinting Controls 

Could Result in 

Inappropriate Admissions to 

the Securities and Futures 

Industries 

While examining the application review process, we found that neither the 

related statutes, SEC, nor CFTC required the SROs to ensure that the 

fingerprints sent to the FBI for use in criminal history checks belonged to 

the applicants who submitted them. Further, in the absence of such a 

requirement, NASD,14 the New York Stock Exchange (NYSE),15 and NFA16

lacked related controls over fingerprinting, potentially allowing 

inappropriate persons to enter the securities and futures industries. The 

securities17 and futures laws18 require that applicants to these industries 

have their fingerprints taken and then sent for review to the FBI as part of a 

criminal background check. The goal of the criminal background check is 

to ensure that inappropriate individuals are not granted admission to the 

securities or futures industries. The statutes also require SRO member 

13Individuals who have been statutorily disqualified have been expelled or suspended from 

membership or participation in an SRO or barred and suspended from associating with a 

member of any SRO.

14Although several securities SROs have formal agreements with the FBI under which they 

may submit fingerprints for a criminal history check, according to an SEC official, the firms 

typically submit fingerprints to NASD because all industry registrants that do business with 

the public—the majority of registrants—must also be NASD members. 

15According to an SEC official, all the securities SROs have similar fingerprinting procedures 

for accepting and processing fingerprints. Because NYSE is the largest securities SRO that 

operates a market, and because we wanted to determine how another SRO’s procedures 

might differ from those of NASD and NFA, we included NYSE in our review. According to an 

SEC official, NASD sends about 300,000 fingerprints to the FBI each year. A NYSE official 

told us that NYSE sends approximately 40,000.

16NFA is responsible for submitting the fingerprints of all futures industry applicants to the 

FBI. According to an NFA official, for the 12-month period ending June 30, 2003, NFA sent 

approximately 11,000 fingerprints to the FBI.

1715 U.S.C. § 78g (f)(2).

187 U.S.C. § 6n and 17 C.F.R. § 3.10 (1997). 
Page 17 GAO-03-795 SEC and CFTC Fines Follow-up

firms to be responsible for assuring that their personnel are fingerprinted. 

SEC and CFTC rules provide that applicants can satisfy this requirement by 

submitting fingerprints to the SROs who then send them to the FBI for 

processing.

However, neither the statutes, SEC, nor CFTC require SROs to ensure that 

the fingerprints sent to the FBI for use in criminal history checks belong to 

the applicants who submitted them. In the absence of such a requirement, 

NASD, NYSE, and NFA have not imposed requirements on member firms to 

help ensure that the identity of the person being fingerprinted matches the 

fingerprints being submitted for FBI review. The SROs told us that, 

consistent with the law, they required their members to be fingerprinted 

and that these fingerprints were submitted to the FBI for assessment. 

NYSE officials emphasized that their members were in full compliance with 

the law and related regulations, which do not require specific controls. 

In the absence of specific requirements, firms have taken a variety of 

approaches to fingerprinting applicants. For example, while SEC and some 

SROs told us that most firms used their own personnel or police officers to 

obtain fingerprints, they said that a small number of firms may allow 

applicants to fingerprint themselves, a practice that provides an 

opportunity for individuals to perpetrate fraud by submitting someone 

else’s fingerprints instead of their own. According to SEC and CFTC 

officials, their agencies have trained staff in their headquarters and some 

regional offices that take fingerprints of their employees using approved 

fingerprinting kits. An NFA official also stated that NFA headquarters has 

trained staff that take fingerprints of industry applicants, verifying their 

identities as part of the process. The FBI also informed us that it suggests 

using law enforcement or other trained personnel to take fingerprints. SEC 

and NYSE also said that many reputable businesses provide fingerprinting 

services and that SRO member firms could contract with these businesses.
Page 18 GAO-03-795 SEC and CFTC Fines Follow-up

In a 1996 CFTC review of NFA’s registration fitness program, CFTC 

recommended that NFA conduct a review to determine the feasibility of 

adopting controls to ensure that the fingerprints submitted for criminal 

history checks belonged to the applicant. NFA found that a number of 

obstacles stood in the way of establishing an effective program to verify 

fingerprints. According to an NFA official, the agency examined the 

procedures of the Bureau of Citizenship and Immigration Services of the 

Department of Homeland Security (formerly the Immigration and 

Naturalization Service) in responding to CFTC’s recommendation. On the 

basis of this examination, NFA concluded that it would not be costeffective to replicate the bureau’s procedures. For example, unlike NFA, 

the bureau has fingerprinting sites throughout the country with trained 

employees to take fingerprints.19 As part of its review, NFA considered 

requiring an attestation form, which would include the fingerprinter’s name 

and address and the document used to verify the applicant’s identity. 

Ultimately, however, NFA concluded that such a form could be subject to 

forgery and would not provide assurance that the fingerprints belonged to 

the applicant. CFTC accepted NFA’s conclusions. 

NYSE and NFA officials described other obstacles to establishing controls 

over fingerprinting. They explained that space limitations on the FBI 

fingerprint card made it difficult to identify the person taking the 

fingerprints. Further, they said that the card provided space for the 

fingerprinter’s signature, which is often illegible, but not for the 

fingerprinter’s printed name or the name of another contact who could 

verify information related to the fingerprints. NYSE officials also said that 

the FBI could adjust its fingerprint card so that it required more complete 

contact information for the person taking the fingerprints. An NFA official 

also told us that because some SROs process registration applications both 

nationally and internationally, these SROs would not be able to establish 

enforceable rules regarding who should take fingerprints. 

We did not determine the extent to which individuals with a criminal 

history could submit someone else’s fingerprints and thus enter the 

securities or futures industries undetected. However, SEC and CFTC 

officials said that the SROs’ fingerprinting processes are vulnerable to such 

19As of February 19, 2003, the bureau had 76 freestanding fingerprinting sites, 54 sites 

located in its offices, and 46 locations served by mobile routes. It had also designated 45 law 

enforcement agencies to take fingerprints. NFA officials told us that futures industry 

applicants were too widely dispersed to travel to the bureau’s sites to be fingerprinted, 

precluding a contractual arrangement with the bureau. 
Page 19 GAO-03-795 SEC and CFTC Fines Follow-up

a practice because of the lack of controls for preventing applicants from 

using someone else’s fingerprints as their own. SRO officials said that 

existing systems were reasonably designed to prevent fraud but were not 

foolproof, adding that the potential cost of imposing any unduly restrictive 

requirements was a concern. Some SRO officials said that to the extent 

they are needed, SEC and CFTC should establish industrywide standards. 

NFA officials said that since weaknesses in fingerprinting procedures apply 

equally to the securities and futures industries, SEC and CFTC should 

establish comparable requirements to ensure that one industry is not at a 

disadvantage to the other. NYSE officials said that SEC rulemaking would 

be the most appropriate method for changes to fingerprinting procedures 

in the securities industry. 

We Calculated 

Collection Rates in 

Two Different Ways to 

Provide a More 

Complete Picture of 

Collection Efforts

To provide a more complete picture of efforts by securities and futures 

regulators to collect fines, we calculated the collection rates in two 

different ways. The collection rates for closed cases (cases with a final 

judgment order for which all collection actions were completed) for SEC,20

CFTC, and the SROs from January 1997 to August 2002 showed that the 

regulators collected most of the fines imposed. Broadening the analysis to 

include open cases (cases with a final judgment order that remained open 

while collection efforts continued) had the greatest impact on SEC’s and 

CFTC’s collection rates because of a few large uncollected fines. Our 

analysis of the collection rates highlights a theme introduced in an earlier 

report that the collection rate alone may not be a valid measure of the 

effectiveness of collection efforts, because collections can be influenced by 

factors that are outside regulators’ control.21

SEC, CFTC, and the SROs 

Collected Almost All Fines 

in Closed Cases

SEC, CFTC, and the SROs collected between 75 and 100 percent of all the 

fines imposed in closed cases. For these cases, collection efforts had 

ceased either because the fines had been collected in full or in part or were 

unlikely to be collected and thus had been written off as bad debts. As 

shown in table 1, SEC and CFTC collected about 94 and 99 percent, 

respectively, of the total dollars levied in cases closed from January 1997 

through August 2002—the period immediately following the one covered in 

20Due to the unreliability of DPTS data, we could not accurately calculate SEC’s collection 

rates. 

21GAO-02-771.
Page 20 GAO-03-795 SEC and CFTC Fines Follow-up

our 1998 fines report. These amounts represent an 11 and 18 percentage 

point increase, respectively, over the rates presented in the 1998 report, 

which covered the 1992–96 period. CFTC wrote off fewer fines as 

uncollectible in the more recent period, and almost all of its collected fines 

were paid in full.

Table 1: Collection Rates for Fines Levied on Closed Cases for 1997–August 2002 and 1992–96 

Source: GAO analysis of SEC, CFTC, and SRO data, except NASD, which calculated its own rates. 

Note: Percentages are rounded to the nearest whole number.

a

NASD data include cases invoiced from 1997 through 2002.

b

Calculations may include cases with payment plans, which we were unable to exclude because of the 

design of NASD’s system. 

The eight securities and futures SROs for which data were available had the 

same or higher collection rates on closed cases in the most recent period 

compared with the earlier period. The Chicago Board of Trade’s collection 

rate showed significant improvement, increasing from 54 to 95 percent of 

the total dollars levied. Its collection rate for the 1992–96 period was 

heavily influenced by two large uncollected fines totaling $2.25 million. 

Excluding those two cases, the rate for this period would have been about 

99 percent rather than 54 percent—much closer to the 95 percent rate for 

the more recent period. NASD’s and NFA’s rates also showed significant 

improvement, increasing 71 and 48 percentage points, respectively, over 

Agencies and securities and futures 

SROs 

Total fines on closed cases for 1997–August 2002

Total fines on 

closed cases for 

1992–96

Amount levied Amount collected 

Percentage 

collected

Percentage 

collected

SEC $186,880,769 $175,446,541 94% 83%

CFTC 163,230,782 161,228,782 99 81

American Stock Exchange 2,406,307 2,286,307 95 75

Chicago Board Options Exchange 3,153,744 3,109,994 99 95

Chicago Board of Trade 3,471,600 3,313,100 95 54

Chicago Mercantile Exchange 3,001,000 2,915,000 97 85

Chicago Stock Exchange 257,500 257,500 100 100

NASD 135,401,570a 129,027,116 95 24b

NFA 3,449,500 2,569,975 75 27

New York Mercantile Exchange 1,163,294 1,163,294 100 Not Available

NYSE 19,150,667 19,145,667 100 98
Page 21 GAO-03-795 SEC and CFTC Fines Follow-up

the rates presented in the 1998 report, which covered the 1992–96 period. 

However, NASD’s and NFA’s collection rates improved because, as we have 

noted, the regulators stopped routinely assessing fines when barring 

individuals from the securities and futures industry. These fines had been 

the most difficult to collect, because barred individuals had little incentive 

to pay them. 

Including Open Cases in the 

Calculations Had the 

Greatest Impact on SEC’s 

and CFTC’s Collection Rates 

Because of a Few Large 

Fines 

SEC’s and CFTC’s collection rates were affected more than the SROs’ rates 

when we added open cases to our calculations. As shown in table 2, SEC 

collected about 40 percent of the total dollars levied in all cases, open and 

closed, from January 1997 through August 2002—54 percentage points less 

than its rate for closed cases. 

Table 2: Collection Rates for Fines Levied on Open and Closed Cases and Closed Cases for 1997–August 2002

Source: GAO analysis of SEC, CFTC, and SRO data, except NASD, which claculated its own rates.

Note: Percentages are rounded to the nearest whole number.

a

NASD data include cases invoiced from 1997 through 2002.

Agencies and securities and futures 

SROs

Total fines on open and closed cases for 1997–August 2002

Total fines on 

closed cases for 

1997–August 2002

Amount levied Amount collected 

Percentage 

collected

Percentage 

collected

SEC $480,375,353 $190,103,396 40% 94%

CFTC 357,832,773 161,269,894 45 99

American Stock Exchange 2,631,819 2,286,307 87 95

Chicago Board Options Exchange 3,168,744 3,113,809 98 99

Chicago Board of Trade 3,549,350 3,321,600 94 95

Chicago Mercantile Exchange 3,073,585 2,962,585 96 97

Chicago Stock Exchange 284,500 257,500 91 100

NASD 210,568,908a 139,607,518 66 95

NFA 4,021,250 2,676,725 67 75

New York Mercantile Exchange 1,422,294 1,177,294 83 100

NYSE 19,151,667 19,146,667 100 100
Page 22 GAO-03-795 SEC and CFTC Fines Follow-up

We examined SEC’s collection rates by year and found that the rates varied 

greatly over time because of a few large fines. (See appendix III for the 

collection rates of the securities regulators for open and closed cases by 

calendar year.) For example, in 1999 SEC collected 26 percent of the total 

fines levied in that year, but one uncollected fine of $123 million 

significantly lowered the rate. Had SEC been able to collect this one fine, 

its collection rate for 1999 would have been 89 percent (fig. 1). Also, in 

2002, SEC collected 61 percent of all fines, but approximately half came 

from two payments made by two violators. Excluding these payments, the 

reported collection rate for 2002 would have been about 30 percent (fig. 1).

Figure 1: SEC’s Actual Collection Rates for Open and Closed Cases, 1997–August 

2002, and Adjusted Collection Rates for Selected Years

To help control for the influence of large dollar amounts on SEC’s 

collection rates, we analyzed the number of cases paid in full and found 

that SEC had collected the full amount of the fine in the majority of cases it 

levied. For the entire period from 1997 through 2001, 72 percent of the fines 

levied had been paid in full. In 2002, 55 percent of the fines levied were paid 

Percentage of dollars collected

Source: GAO analysis of SEC's data.

1997 1998 1999 2000 2001 2002

Actual collection rate

Adjusted collection rate

20

40

60

80

100

0
Page 23 GAO-03-795 SEC and CFTC Fines Follow-up

in full. The rate may be lower for 2002 because SEC has had less time—

approximately 4 months—to collect on cases levied through August 2002.

CFTC collected about 45 percent of the total dollar amount of the fines it 

levied over the same period. Like SEC’s rate, CFTC’s was heavily influenced 

by a few large fines. A closer review of CFTC’s annual rates from January 

1997 through August 2002 showed that the regulator collected between 2 

and 90 percent of the total fines levied. (See appendix IV for the collection 

rates of the futures regulators for open and closed cases by calendar year.) 

But in 2000, when CFTC’s collection rate was just 2 percent, our 

calculations included a single uncollected fine of $90 million. Had CFTC 

been able to collect this one fine, its collection rate would have been 95 

percent (fig. 2). Also, in 1998, when CFTC collected 90 percent of the total 

dollar amount levied through August 2002, one payment for $125 million 

heavily skewed the rate (fig. 2). Without this one payment and fine, CFTC’s 

reported collection rate would have been approximately 7 percent (fig. 2). 

To help control for the influence that large dollar amounts can have on the 

rate, we again analyzed the number of cases paid in full. Over the entire 

period of our study, from 1997 through August 2002, CFTC had collected 

the full amount in slightly more than 50 percent of the cases it levied. 

Although CFTC’s collection rates over the entire period of our study were 

relatively low, the agency was actively pursuing collections on all its 

uncollected cases, primarily through the Departments of Treasury and 

Justice. CFTC’s Chief of Cooperative Enforcement told us that the agency 

would continue to levy large fines when appropriate, even though large 

uncollectible amounts could reduce the agency’s collection rate. He said 

that levying fines that are commensurate with the related wrongdoing 

sends a message to the public that CFTC is serious about enforcing its 

statutes. 
Page 24 GAO-03-795 SEC and CFTC Fines Follow-up

Figure 2: CFTC’s Actual Collection Rates for Open and Closed Cases, 1997–August 

2002, and Adjusted Collection Rates for Selected Years

The collection rates for the nine securities and futures SROs were 

comparable in both sets of calculations (see table 2). When we included 

open cases in our calculations, these SROs’ collection rates decreased 

slightly, with all but two (NASD’s and the New York Mercantile Exchange’s) 

declining between 1 and 9 percentage points. One reason for the relatively 

small decline was that these SROs generally had fewer and smaller 

uncollected fines, suggesting that they had been more successful in 

collecting on all cases than SEC and CFTC. According to an NFA official, 

one reason that the SROs that operate markets had higher collection rates 

was that in their role as exchanges they could sell a member’s “seat,” or 

membership, to pay off the fine, giving members an incentive to pay their 

fines. Because other regulators do not have this type of leverage, their rates 

are typically lower.

0

20

40

60

80

100

1997 1998 1999 2000 2001 2002

Percentage of dollars collected

Actual collection rate

Adjusted collection rate

Source: GAO analysis of CFTC's data.
Page 25 GAO-03-795 SEC and CFTC Fines Follow-up

NASD’s collection rate for closed cases was 95 percent and its rate for open 

and closed cases was 66 percent—a change of 29 percentage points. 

NASD’s rate for open and closed cases22 was affected by low collections in 

1997 and 1998. As a result, the rates did not necessarily reflect the effects of 

the changes NASD made to its fine imposition practices in October 1999. As 

indicated in figure 3, NASD’s annual collection rates generally increased 

from January 1997 through December 2002. In 1997, NASD collected 26 

percent of the total dollars invoiced. In 2002, it collected 96 percent—a 70 

percentage point increase over 6 years. As we reported earlier, one of the 

primary reasons for the increases was a change in the way NASD imposes 

fines. Specifically, NASD stopped routinely assessing fines when barring an 

individual from the industry, reducing the number of fines it invoiced each 

year and improving its overall collection rate. Also, in calculating its rate, 

NASD excluded about $137 million in fines that would be due and payable 

only if the fined individuals were to reenter the securities industry. The 

New York Mercantile Exchange’s collection rate for open and closed cases 

was 83 percent—a decline of 17 percentage points from its closed case 

rate. When we excluded one uncollected $200,000 fine, the collection rate 

for open and closed cases declined by only 4 percentage points. 

22Because of the way NASD’s financial system was designed, we could not calculate the 

collection rate with an acceptable degree of accuracy using the approach we applied to 

other SROs. As a result, we relied on summary information that NASD provided. NASD’s 

calculations use cases invoiced from January 1997 through December 2002; for the other 

SROs, we used cases levied through August 31, 2002. See appendix I for the potential impact 

of NASD’s invoicing procedures on the amounts collected. 
Page 26 GAO-03-795 SEC and CFTC Fines Follow-up

Figure 3: NASD’s Collection Rates for Open and Closed Cases, 1997–2002

Collection Rates Can Be 

Influenced by Factors That 

Are Beyond Regulators’ 

Control 

Collection rates are the most widely available—and in some cases the 

only—measure of regulators’ success in collecting fines for violations of 

securities and futures laws. But external factors over which regulators 

have no control can skew these rates. Nonetheless, examining the rates and 

the factors influencing them can be a starting point for obtaining an 

understanding of regulators’ performance and changes to it. Also, in 

exploring these rates regulators can identify cases that account for a 

significant share of uncollected debts and decide whether continuing with 

collection efforts for these cases is worthwhile. 

Primary among the external factors affecting collection rates are the large 

fines and payments that we have been discussing. Just one or two 

extremely large uncollected fines can lower a collection rate significantly. 

Similarly, one or two large payments on such fines can raise a collection 

rate. Other external factors that can influence collection rates include 

violators’ ability to pay and the size of the fines themselves. For example, 

an SEC official said that some violators who have been barred from the 

industry cannot pay their fines because their earning capacity has been 

limited. In discussing CFTC’s relatively low collection rate, an agency 

official told us that the courts, in an attempt to match the gravity of the 

sanction to the offense, have sometimes imposed fines that are more than 

what an agency might realistically be able to collect. This official said that 

Percentage of dollars collected

Source: GAO analysis of NASD's data.

20

0

40

60

80

100

1997 1998 1999 2000 2001 2002
Page 27 GAO-03-795 SEC and CFTC Fines Follow-up

in one case, a court fined a company $90 million—triple the monetary gain 

from its illegal activities. He also said that in another case, a court assessed 

fines totaling $4 million against four violators, although CFTC had sought 

$660,000. 

Conclusions Since our last report, SEC and CFTC have made material improvements to 

their policies and procedures for collecting delinquent fines that, if 

followed, should improve collections on debts owed to the federal 

government. Nonetheless, SEC lacks a formal strategy for collecting on its 

pre-guidelines delinquent debt. Although the probability of collecting 

monies ordered on older cases diminishes over time, some portion of these 

pre-guidelines cases may have collection potential that is being overlooked. 

Developing a formal strategy that prioritizes pre-guidelines cases based on 

their collection potential and establishes time frames for their referral to 

FMS and TOP would improve the likelihood of collecting some portion of 

the debt associated with these cases, which could be more than $1 billion. 

The success of SEC’s efforts to collect this debt will be closely related to 

the timely replacement of DPTS. Phase one of SEC’s action plan includes a 

tentative deadline for replacing DPTS by the end of fiscal year 2003. At that 

time, SEC will be able to identify all cases eligible for referral to FMS and 

TOP and develop a strategy for making these referrals. SEC has not yet set 

a milestone for completing the requirements analysis for phase two of its 

action plan or established a date to fully implement the computer system 

that will integrate SEC’s now separate databases. We are concerned that, 

without target dates, progress in implementing phase two could be slowed, 

affecting SEC’s ability to more efficiently address all cases that should be 

referred to FMS and TOP. 

Further, SEC’s progress has been slow in the 5 years since we 

recommended that the agency analyze industrywide information on SRO 

disciplinary program sanctions, in part because technological problems 

have hindered its ability to collect sufficient data to perform the analyses. 

SEC has not yet completed its first analysis and has no schedule for 

implementing the new disciplinary database intended to replace its current 

database. Finally, while controls were in place that should keep barred 

individuals from being readmitted to the securities and futures industries, 

neither the related statutes, SEC, or CFTC require the SROs to ensure that 

the fingerprints sent to the FBI for use in criminal history checks belong to 

the applicants who submit them. In the absence of such a requirement, the 

SROs lacked related controls that could help prevent inappropriate 
Page 28 GAO-03-795 SEC and CFTC Fines Follow-up

admissions to the securities and futures industries. SRO involvement in 

weighing alternatives for addressing fingerprinting requirements for the 

securities and futures industries would ensure that concerns about costeffective solutions are appropriately considered and addressed. 

Recommendations We recommend that the SEC Chairman 

• develop a formal strategy for referring pre-guidelines cases to FMS and 

TOP that prioritizes cases based on collectibility and establishes 

implementation time frames; 

• take the necessary steps to implement the action plan to replace DPTS 

by (1) meeting the fiscal year 2003 milestone for implementing phase 

one of the plan, (2) setting a milestone for completing the requirements 

analysis for phase two of the plan, and (3) establishing and meeting the 

implementation date for phase two; and 

• analyze the data that have been collected on the SROs’ disciplinary 

programs, address any findings that result, and establish a time frame 

for implementing the new disciplinary database that is to replace the 

current database. 

We also recommend that SEC and CFTC work together and with the 

securities and futures SROs to address weaknesses in controls over 

fingerprinting procedures that could allow inappropriate persons to be 

admitted to the securities and futures industries.

Agency Comments and 

Our Evaluation

We requested comments on a draft of this report from the Chairmen, or 

their designees, of SEC and CFTC. SEC officials provided written 

comments, which are reprinted in appendix II. CFTC provided oral 

comments. In general, both agencies agreed with the facts we presented 

and also agreed to implement the recommendations we made. SEC 

emphasized that it expected to meet its milestone for implementing a 

replacement database for DPTS by the end of fiscal year 2003 and said that 

once the new system was in place, the agency would be able to identify 

delinquent debts that had not been referred to FMS and TOP and set 

deadlines for making referrals. While SEC said that further milestones for 

phase two of its action plan will be set at some time in the future, it made 

no reference to establishing a time frame for implementing its new 
Page 29 GAO-03-795 SEC and CFTC Fines Follow-up

disciplinary database. We believe that SEC needs to move quickly to set 

time frames for both of these projects, because in the absence of dates on 

which to focus, progress may be delayed. SEC also said that agency staff 

will contact CFTC to review the possibility of adopting new industrywide 

fingerprinting standards, including procedures to verify the identities of all 

individuals who are being fingerprinted. CFTC officials told us that they 

would work with SEC and the SROs to address our recommendation. 

Finally, we also received technical comments from SEC and CFTC that we 

incorporated into the report, as appropriate.

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies of this report to the Chairmen 

and Ranking Minority Members of the Senate Committee on Banking, 

Housing, and Urban Affairs and its Subcommittee on Securities and 

Investment; the Chairman, House Committee on Energy and Commerce; 

the Chairman, House Committee on Financial Services and its 

Subcommittee on Capital Markets, Insurance, and Government Sponsored 

Enterprises; and other interested congressional committees. We will send 

copies to the Chairman of SEC, the Chairman of CFTC, and other interested 

parties. We also will make copies available to others upon request. In 

addition, the report will be available at no charge on the GAO Web site 

http://www.gao.gov.

If you have any further questions, please call me at (202) 512-8678, 

dagostinod@gao.gov, or Cecile Trop at (312) 220-7705, tropc@gao.gov. 

Additional GAO contacts and staff acknowledgments are listed in appendix 

V.

Davi M. D’Agostino

Director, Financial Markets and 

 Community Investment
Page 30 GAO-03-795 SEC and CFTC Fines Follow-up

Appendix I

Scope and Methodology AAppenednxidexiIs

To evaluate SEC’s and CFTC’s actions to improve their collection programs, 

we assessed their responses to our 2001 recommendations that (1) SEC 

take steps to ensure that regulations allowing SEC fines to be submitted to 

TOP are adopted; (2) SEC continue to work with FMS to ensure that 

compromise offers presented by FMS are approved in a timely manner; and 

(3) CFTC take steps to ensure that delinquent fines are referred promptly to 

FMS, including creating formal procedures that address both sending debts 

to FMS within the required time frames and requiring all of the necessary 

information from the Division of Enforcement on these debts. 

To assess steps SEC took to ensure that regulations allowing SEC fines to 

be submitted to TOP were adopted, we reviewed SEC’s final regulations 

and related procedures and collection guidelines. To determine compliance 

with the new collection guidelines for referring delinquent cases to TOP, 

we selected a judgmental sample of 66 post-guidelines fines and 

disgorgement cases using DPTS and obtained information from SEC on the 

referral status of those cases.1

 Of the 66 cases, four were eligible for 

referral at the time of our review. We selected cases where judgments or 

orders were entered after SEC’s guidelines took effect, because staff told 

us they were tracking the referral of those cases. To determine the number, 

dollar amount owing, and age of the delinquent cases at the agency, we 

identified all cases with ongoing collections, using DPTS data as of January 

31, 2003, and calculated the age from the judgment date (which in the 

absence of better data, we used as a rough proxy for the delinquency date) 

to January 31, 2003. Since DPTS was unreliable, the aging analysis provides 

only a rough estimate of the total number and age of cases. We interviewed 

SEC and FMS officials to obtain their views on SEC’s progress in referring 

cases to FMS and TOP and information on any impediments to this 

progress.

To assess SEC’s efforts to continue to work with FMS to ensure that 

compromise offers presented by FMS are approved in a timely manner, we 

examined SEC’s procedures for processing compromise offers. We 

obtained data from SEC on the four compromise offers FMS submitted to 

SEC between July 1, 2001, and April 22, 2003, and analyzed the length of 

time it took for SEC to respond to the compromise offers. We obtained and 

used FMS’s data to validate SEC’s response time. We also interviewed SEC 

and FMS officials to discuss SEC’s policies, procedures, and controls and to 

1

We included both fines and disgorgement cases, because the collection guidelines apply 

equally to both.
Appendix I

Scope and Methodology

Page 31 GAO-03-795 SEC and CFTC Fines Follow-up

obtain information on the agencies’ efforts to work together to ensure the 

timely approval of offers. We also obtained FMS’s views on SEC’s progress 

in responding to offers. 

To assess steps CFTC took to ensure that delinquent fines are promptly 

referred to FMS, we reviewed CFTC’s collection procedures, which it calls 

instructions, to ensure that they included time frames for referring cases to 

FMS and provisions for obtaining all necessary enforcement information. 

We also reviewed related agency controls. To assess staff’s compliance 

with the revised procedures, we obtained data from CFTC on its only four 

delinquent cases and analyzed the length of time it took to refer them to 

FMS. We obtained and used FMS’s data to validate that all of CFTC’s cases 

have been transferred within 180 days. We also interviewed CFTC officials 

to discuss the agency’s procedures and controls and obtained FMS’s views 

on CFTC’s progress in referring fines. 

To assess SEC’s and CFTC’s efforts to enhance their oversight of the SROs’ 

sanctioning practices, we assessed their responses to our 1998 and 2001 

recommendations that (1) SEC analyze industrywide information on 

disciplinary program sanctions, particularly fines, to identify possible 

disparities among the SROs and find ways to improve the SROs’ programs; 

and (2) SEC and CFTC periodically assess the pattern of readmission 

applications to ensure that the changes in NASD’s and NFA’s fine 

imposition practices do not result in any unintended consequences, such as 

inappropriate readmissions. 

To assess the status of SEC’s efforts to analyze industrywide information 

on SROs’ disciplinary program sanctions, we interviewed SEC officials to 

discuss the types of analyses planned, any obstacles encountered, and 

efforts to overcome those obstacles. To assess both SEC’s and CFTC’s 

efforts to periodically assess the pattern of readmission applications, we 

interviewed officials of these agencies to determine the number of 

readmission applications from barred individuals and reviewed 

documentation that described the controls used to keep barred applicants 

from reapplying. We focused our review on permanent bars and application 

records since NASD and NFA changed their fine imposition practices in 

October 1999 and December 1998, respectively. To validate both agencies’ 

statements that they had not reviewed any readmission applications from 

barred individuals since our 2001 report, we obtained the names of barred 

individuals from NASD and NFA and verified that each individual had not 

applied for readmission. Specifically, for NASD, we compared the names of 

over 900 barred applicants who had not been fined against a list of 
Appendix I

Scope and Methodology

Page 32 GAO-03-795 SEC and CFTC Fines Follow-up

readmission applications. We focused on these individuals because of 

concerns that individuals who had been barred and not fined might be 

more willing to seek readmission than those who had been barred and 

fined. For NFA, we researched the histories of 32 barred individuals, using 

NFA’s database to validate that none of the individuals had applied for 

readmission. We examined all barred applicants, including both those who 

had been fined and those who had not been, because the data did not allow 

us to distinguish between these groups. To ensure that NFA’s and NASD’s 

data were sound, we interviewed agency officials to assess the controls 

these agencies had over their data systems, such as their processes for 

entering and updating data, safeguards for protecting the data against 

unauthorized changes, and any tests conducted to verify the accuracy and 

completeness of the data. We found that the data were useable for our 

purposes. 

To address concerns that surfaced during our review about controls over 

the fingerprinting procedures used in criminal history checks, we 

interviewed officials at NASD, NFA, NYSE, and the FBI and reviewed laws 

and regulations related to fingerprinting. In addition to NYSE, other SROs 

that operate markets have agreements with the FBI under which they may 

submit fingerprints to the FBI for criminal history checks. We limited our 

review to NYSE because it is the largest SRO that operates a market, and 

we wanted to determine how another SRO’s procedures might differ from 

those of NASD and NFA. 

To calculate the fines collection rates for SEC, CFTC, and nine securities 

and futures SROs for 1997 through 2002 (all years were calendar years), we 

focused on these regulators’ imposition and collection of fines through 

their enforcement and disciplinary programs. The nine SROs2

 included the 

American Stock Exchange, the Chicago Board Options Exchange, the 

Chicago Board of Trade, the Chicago Mercantile Exchange, the Chicago 

Stock Exchange, NASD, NFA, the New York Mercantile Exchange, and 

NYSE. We excluded fines for minor rule infringements such as floor 

conduct, decorum, and record-keeping violations that normally do not 

undergo disciplinary proceedings. The exchanges generally referred to 

these violations as “traffic ticket” violations, and they are handled through 

2

As in our previous reports, we excluded regional securities exchanges that delegated their 

broker-dealer examination authority to the American Stock Exchange, Chicago Board 

Options Exchange, NASD, or NYSE because they administered few disciplinary actions. We 

also excluded some futures exchanges based on the same rationale. 
Appendix I

Scope and Methodology

Page 33 GAO-03-795 SEC and CFTC Fines Follow-up

summary proceedings and involve smaller fine amounts. We excluded 

amounts owed for disgorgement and restitution, except for NASD, because 

these sanctions are different from fines in that they are imposed to return 

illegally made profits or to restore funds illegally taken from investors. Due 

to the way NASD tracked its fines and payments, NASD was unable to 

exclude disgorgement amounts from its payment data. We also excluded 

fines that were not invoiced, because they would not be due unless the 

fined individual sought to reenter the securities industry. All other fines 

were factored into the rate, including fines dismissed in bankruptcy,3

 to 

obtain the most complete view possible of the regulators’ efforts to 

discipline violators.4

 

To calculate annual fines collection rates and composite collection rates, 

we obtained and analyzed data from SEC, CFTC, and all SROs, except 

NASD, on fines levied from January 1997 through August 2002, and 

collected through December 2002. NASD’s data include fines invoiced from 

1997 through 2002. We limited our review to fines levied through August 

2002 to allow regulators through December 2002 (4 months) to attempt 

collections. We calculated the collection rate in two ways. First, we 

calculated the rate by including only closed cases—that is, cases with a 

final judgment order for which all collection actions were completed. This 

approach is consistent with the one used in our 1998 report.5

 Second, to 

provide a more complete view of regulators’ collection activities, we 

calculated the rate using all closed and open cases—that is, cases with a 

final judgment order for which collections actions were completed and 

cases with a final judgment order that remained open while collection 

efforts continued. For cases with a payment plan, we adjusted the levy 

amount to the amount owed as of December 31, 2002, because a portion of 

the original levied amount was not yet due. We could not do this for SEC or 

NASD because agency data did not specify the amount owed as of 

December 31, 2002. As a result, SEC’s and NASD’s rate may be understated.

3

Provisions of the Sarbanes-Oxley Act of 2002 have amended the federal Bankruptcy Code 

to prevent individual debtors from discharging in bankruptcy court certain debts, including 

judgments and settlements that result from violations of federal and state securities laws or 

regulations. Sarbanes-Oxley Act § 803, amending 11 U.S.C. 523(a).

4

To the extent that cases were dismissed through bankruptcy proceedings, these cases 

would be included in the closed case analysis. 

5

GAO/GGD-99-8.
Appendix I

Scope and Methodology

Page 34 GAO-03-795 SEC and CFTC Fines Follow-up

We also used NASD’s calculations of its collection rates, because the design 

of NASD’s financial system did not allow us to calculate these rates with an 

acceptable degree of accuracy using the approach we applied to other 

SROs. First, according to NASD officials, NASD’s calculations used the date 

a fine was invoiced instead of the date it was levied. Fines were typically 

invoiced between 15 and 45 days after they were levied. This difference 

may have had a minor effect, particularly on the annual collection rates. 

Second, NASD’s collection rates represent the total amount collected up to 

December 31, 2002, on fines invoiced from January 1997 through December 

2002 (as opposed to the August 31, 2002, date for the other SROs). Third, 

because NASD’s system could not identify cases on a payment plan, 

NASD’s calculations do not adjust the fine amount to the amount owing as 

of December 31, 2002, exerting a slight bias toward understating the 

collection rate. Fourth, NASD’s collection rates (1) include disgorgement 

because NASD was not able to separate such amounts from its payment 

data and (2) exclude fines that were levied but not invoiced because such 

fines were not due unless the fined individual sought to reenter the 

securities industry. 

We also assessed the reliability of the data provided by the 11 regulators by 

asking officials about agency controls for collecting fines and payment 

data, supervising data entry, safeguarding the data from unauthorized 

changes, and processing that data. We also asked whether they performed 

data verification and testing. Although the controls varied across the 

agencies, each one demonstrated a basic level of system and application 

controls. We also performed basic tests of the integrity of the data we 

received from some of the regulators that provided us with individual fines 

data. We concluded that the data from all of the organizations, except SEC, 

was sufficiently reliable for the purposes of this report. 

The number of errors we and SEC found in DPTS during the course of our 

work and the findings of the January 3, 2003, report to the SEC Inspector 

General that the data in DPTS were incomplete and inaccurate led us to 

conclude that DPTS fines data remain insufficiently reliable to calculate an 

accurate collection rate. While we cannot be sure of the magnitude or 

direction of the errors in the DPTS fines data, we are nevertheless 

reporting the number and dollar value of cases eligible for referral to FMS 

and TOP, the age of this debt, and SEC collection rates as the best estimates 

possible at this time.

We did our work in accordance with generally accepted government 

auditing standards between August 15, 2002, and July 1, 2003. We 
Appendix I

Scope and Methodology

Page 35 GAO-03-795 SEC and CFTC Fines Follow-up

performed our work in Boston, Mass.; Chicago, Ill.; New York, N.Y.; and 

Washington, D.C.
Page 36 GAO-03-795 SEC and CFTC Fines Follow-up

Appendix II

Comments from the Securities and Exchange 

Commission ApendxiI
Appendix II

Comments from the Securities and Exchange 

Commission

Page 37 GAO-03-795 SEC and CFTC Fines Follow-up
Appendix II

Comments from the Securities and Exchange 

Commission

Page 38 GAO-03-795 SEC and CFTC Fines Follow-up
Page 39 GAO-03-795 SEC and CFTC Fines Follow-up

Appendix III

Securities Regulators’ Collection Rates for 

Open and Closed Cases by Calendar Year ApendxiI

We calculated the collection rates using data from SEC and the SROs, 

except for NASD, which calculated its own rates (see appendix I for further 

details). The rates are based on fines levied from January 1997 through 

August 2002 and include all amounts collected on those fines through 

December 2002, except for NASD. The fines data listed for each year 

represent collection activity on the fines levied in each of those years. 

Percentages were rounded to the nearest whole number.

Table 3: SEC’s Collection Rates

Source: GAO analysis of SEC’s data.

Table 4: The American Stock Exchange’s Collection Rates

Source: GAO analysis of the American Stock Exchange’s data.

Year

Number of fines 

levied

Percentage of fines 

paid in full Amount levied Amount collected

Percentage of 

dollars collected

1997 233 80% $56,302,014 $18,360,390 33%

1998 291 72 47,688,706 26,530,896 56

1999 444 76 195,173,240 50,111,404 26

2000 347 74 38,390,286 21,188,325 55

2001 300 72 61,205,291 24,108,247 39

2002 215 55 81,615,816 49,804,134 61

Total 1,830 72% $480,375,353 $190,103,396 40%

Year

Number of fines 

levied

Percentage of fines 

paid in full Amount levied Amount collected

Percentage of 

dollars collected

1997 17 88% $310,000 $237,500 77%

1998 13 85 341,500 309,640 91

1999 8 63 355,000 260,000 73

2000 5 80 217,243 204,167 94

2001 8 88 1,300,000 1,200,000 92

2002 7 71 108,076 75,000 69

Total 58 81% $2,631,819 $2,286,307 87%
Appendix III

Securities Regulators’ Collection Rates for 

Open and Closed Cases by Calendar Year

Page 40 GAO-03-795 SEC and CFTC Fines Follow-up

Table 5: The Chicago Board Options Exchange’s Collection Rates

Source: GAO analysis of the Chicago Board Options Exchange’s data.

Table 6: The Chicago Stock Exchange’s Collection Rates

Source: GAO analysis of the Chicago Stock Exchange’s data.

Year

Number of fines 

levied

Percentage of fines 

paid in full Amount levied Amount collected

Percentage of 

dollars collected

1997 70 99% $1,048,401 $1,044,901 100%

1998 38 97 463,278 453,278 98

1999 50 96 569,165 561,565 99

2000 38 92 659,400 633,065 96

2001 16 94 340,000 332,500 98

2002 7 100 88,500 88,500 100

Total 219 96% $3,168,744 $3,113,809 98%

Year

Number of fines 

levied

Percentage of fines 

paid in full Amount levied Amount collected

Percentage of 

dollars collected

1997 3 100% $11,000 $11,000 100%

1998 6 100 39,500 39,500 100

1999 8 88 125,000 100,000 80

2000 6 67 87,000 85,000 98

2001 1 100 20,000 20,000 100

2002 1 100 2,000 2,000 100

Total 25 88% $284,500 $257,500 91%
Appendix III

Securities Regulators’ Collection Rates for 

Open and Closed Cases by Calendar Year

Page 41 GAO-03-795 SEC and CFTC Fines Follow-up

Table 7: NASD’s Collection Rates

Source: NASD.

a

NASD data include fines invoiced from 1997 through 2002. See appendix I for the potential impact of 

NASD’s invoicing procedures on the amounts collected.

Table 8: NYSE’s Collection Rates

Source: GAO analysis of NYSE’s data.

Year

Number of fines 

levied

Percentage of fines 

paid in full Amount levieda Amount collected

Percentage of 

dollars collected

1997 881 64% $38,782,000 $10,189,309 26%

1998 916 65 27,933,000 11,032,446 39

1999 901 66 42,714,100 26,817,300 63

2000 701 70 14,292,808 11,979,986 84

2001 657 76 16,677,000 12,376,818 74

2002 659 72 70,170,000 67,211,659 96

Total 4,715 68% $210,568,908 $139,607,518 66%

Year

Number of fines 

levied

Percentage of fines 

paid in full Amount levied Amount collected

Percentage of 

dollars collected

1997 37 100% $1,637,500 $1,637,500 100%

1998 38 100 3,345,000 3,345,000 100

1999 50 100 4,365,000 4,365,000 100

2000 54 100 4,953,667 4,953,667 100

2001 55 98 3,981,500 3,976,500 100

2002 22 100 869,000 869,000 100

Total 256 100% $19,151,667 $19,146,667 100%
Page 42 GAO-03-795 SEC and CFTC Fines Follow-up

Appendix IV

Futures Regulators’ Collection Rates for Open 

and Closed Cases by Calendar Year ApendxiIV

We calculated the collection rates using data from CFTC and the SROs. The 

rates are based on fines levied from January 1997 through August 2002 and 

include all amounts collected on those fines through December 2002. The 

fines data listed for each year represent collection activity on the fines 

levied in each of those years. Percentages were rounded to the nearest 

whole number.

Table 9: CFTC’s Collection Rates

Source: GAO analysis of CFTC’s data.

Table 10: The Chicago Board of Trade’s Collection Rates

Source: GAO analysis of the Chicago Board of Trade’s data.

Year

Number of fines 

levied

Percentage of fines 

paid in full Amount levied Amount collected

Percentage of 

dollars collected

1997 18 67% $2,767,000 $1,590,000 57%

1998 25 44 140,507,176 126,078,305 90

1999 40 38 86,192,731 22,955,045 27

2000 40 80 97,321,467 2,255,255 2

2001 39 44 15,689,399 7,886,289 50

2002 25 44 15,355,000 505,000 3

Total 187 52% $357,832,773 $161,269,894 45%

Year

Number of fines 

levied

Percentage of fines 

paid in full Amount levied Amount collected

Percentage of 

dollars collected

1997 53 98% $334,500 $334,000 100%

1998 31 90 162,000 141,500 87

1999 38 95 1,570,500 1,545,500 98

2000 53 92 545,125 497,125 91

2001 39 90 306,175 273,925 89

2002 42 88 631,050 529,550 84

Total 256 93% $3,549,350 $3,321,600 94%
Appendix IV

Futures Regulators’ Collection Rates for 

Open and Closed Cases by Calendar Year

Page 43 GAO-03-795 SEC and CFTC Fines Follow-up

Table 11: The Chicago Mercantile Exchange’s Collection Rates

Source: GAO analysis of the Chicago Mercantile Exchange’s data.

Table 12: NFA’s Collection Rates

Source: GAO analysis of NFA’s data.

Year

Number of fines 

levied

Percentage of fines 

paid in full Amount levied Amount collected

Percentage of 

dollars collected

1997 16 94% $811,500 $801,500 99%

1998 21 86 1,053,000 1,032,000 98

1999 25 100 349,500 349,500 100

2000 16 81 183,000 138,000 75

2001 31 97 443,250 433,250 98

2002 11 91 233,335 208,335 89

Total 120 93% $3,073,585 $2,962,585 96%

Year

Number of fines 

levied

Percentage of fines 

paid in full Amount levied Amount collected

Percentage of 

dollars collected

1997 16 94% $426,500 $401,500 94%

1998 32 47 962,500 450,000 47

1999 21 90 760,500 733,000 96

2000 28 57 1,269,000 638,375 50

2001 24 54 304,250 239,250 79

2002 14 29 298,500 214,600 72

Total 135 61% $4,021,250 $2,676,725 67%
Appendix IV

Futures Regulators’ Collection Rates for 

Open and Closed Cases by Calendar Year

Page 44 GAO-03-795 SEC and CFTC Fines Follow-up

Table 13: The New York Mercantile Exchange’s Collection Rates

Source: GAO analysis of the New York Mercantile Exchange’s data.

Year

Number of fines 

levied

Percentage of fines 

paid in full Amount levied Amount collected

Percentage of 

dollars collected

1997 18 100% $186,100 $186,100 100%

1998 8 75 79,000 39,000 49

1999 15 100 141,000 141,000 100

2000 22 91 396,000 191,000 48

2001 20 95 224,194 224,194 100

2002 14 100 396,000 396,000 100

Total 97 95% $1,422,294 $1,177,294 83%
Page 45 GAO-03-795 SEC and CFTC Fines Follow-up

Appendix V

GAO Contacts and Staff Acknowledgments ApendxiV

GAO Contacts Davi D’Agostino, (202) 512-8678

Cecile Trop, (312) 220-7705

Acknowledgments In addition to those named above, Emily Chalmers, Marc Molino, Carl 

Ramirez, Jerome Sandau, Michele Tong, Sindy Udell, and Anita Zagraniczny 

made key contributions to this report. 

(250092)
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GAO also accepts VISA and Mastercard. Orders for 100 or more copies mailed to

a single address are discounted 25 percent. Orders should be sent to: 

U.S. General Accounting Office 

441 G Street NW, Room LM

Washington, D.C. 20548 

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061 

Contact:

Web site: www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470 

Jeff Nelligan, Managing Director, NelliganJ@gao.gov (202) 512-4800 

U.S. General Accounting Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548 

Obtaining Copies of 

GAO Reports and

Testimony 

Order by Mail or Phone 

To Report Fraud,

Waste, and Abuse in 

Federal Programs 

Public Affairs 
United States

General Accounting Office

Washington, D.C. 20548-0001

Official Business

Penalty for Private Use $300

Address Service Requested

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Postage & Fees Paid

GAO

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